In a sudden ending to a strange courtroom saga, a Georgia company that manufactures herbal nutritional supplements and three of its executives have pleaded guilty to conspiracy and fraud charges for illegally selling generic prescription drugs over the Internet.
Hi-Tech Pharmaceuticals Inc. of Norcross, Ga., President and CEO Jared Wheat, 36, Vice President Stephen D. Smith, 40, and company co-founder Tomasz Holda, 45, all pleaded guilty Friday in U.S. District Court in Atlanta to conspiring to import and distribute adulterated, mislabeled and unapproved new drugs and to commit mail and wire fraud. Also pleading guilty to the charges was Sergio Oliveira, 48, a sales associate who worked out of the company’s headquarters.
In a plea bargain, the defendants admitted to operating a manufacturing facility in Belize that made generic versions of such pharmaceuticals as Xanax, Valium, Ambien, Vioxx, Zoloft, Viagra and Cialis and selling them over the Internet without requiring prescriptions.
Prosecutors dropped the most serious charge against Wheat, which accused him of engaging in a “continuing criminal enterprise,” in the plea negotiations. That charge could have landed Wheat in prison for a minimum of 20 years and resulted in the forfeiture of his company.
Prosecutors also backed away from earlier assertions that Hi-Tech’s successful lines of herbal dietary supplements — they are carried by many major U.S. retailers as well as thousands of convenience stores — had been spiked with ephedrine alkaloids even after the U.S. Food and Drug Administration banned their use. The FDA banned the substance — the active agent in the ephedra plant — in 2004 after finding that it presented “an unreasonable risk of illness or injury.”
Purported assassination, blackmail plots
Also missing from the final plea deal was any reference to the prosecution’s previous contention that Wheat, Smith and Holda conspired to murder a U.S. Food and Drug Administration agent and blackmail a former assistant U.S. attorney general. That sensational allegation, based on information provided by confidential informants, surfaced in court documents filed in March 2006 by prosecutors in response to Wheat’s bid to be released on bond.
While the defendants can claim some victories in the long-running legal battle, they face up to five years in prison and fines of up to $250,000 apiece. They will be sentenced on Oct. 21. Wheat also agreed to forfeit $3 million and two sports cars — a 2000 Ferrari 360 Modena F and a 2006 Maserati Quattroporte.
The company itself faces a fine of the greater of $500,000 or double the amount of the fraud, which the government said “realized millions of dollars” before it was shut down in late 2006.
In a statement announcing the guilty pleas, David E. Nahmais, U.S. attorney for the northern district of Georgia, said the defendants exposed customers to unknown health risks and violated patents in the name of “greed, pure and simple.”
“These defendants set up an offshore manufacturing facility where, in unsanitary conditions, they reproduced leading pharmaceutical products for importation into the United States, all without FDA approval or licensing from the rightful patent holders,” he said.
Wheat, who protested his innocence of all charges against him in an exclusive interview with msnbc.com in December 2007, did not respond to a phone call seeking comment.
But attorney Arthur W. Leach, who represented Hi-Tech Pharmaceuticals and worked closely with Wheat’s defense team on the case, said the settlement was a matter of expediency.
‘You have to cut your losses’
“We decided to enter a plea to reduce the exposure that Jared and the company and all the defendants had in this case,” he said. “... It’s one of these situations where in order to get past this and have a life and not have to face the prospect of 20 years to life in prison, you have to cut your losses.”
Attorneys for the other defendants said their clients were relieved to have the ordeal behind them.
"It was in Stevie’s best interest as his fellow defendants had reached plea agreements," said Brett M. Bloomston, who represented Stephen Smith. "We’re optimistic he will not have to serve any more time as he served a lengthy time (17 months) before being released on bond."
“The cases are resolved and I’m happy for everyone that it’s over," said Holda's attorney, Thomas J. Spina, noting that his client will be able to serve his sentence concurrently with the year remaining on his prison term for being a felon in possession of a silencer.
Oliveira's lawyer, Joe McClain, said, "We negotiated long and hard to get to that result and Sergio and I are pleased that we are able to end this and he’s looking forward to getting on with his life."
Leach said that the plea bargain also would remove the cloud of uncertainty hanging over Hi-Tech Pharmaceuticals.
"In terms of this criminal case, there will be no more threat to the corporation as an operating entity," he said. "... We still have the FTC ... but my belief is that the company will continue to operate."
The latter statement refers to a preliminary order issued in June by a different federal court judge in Atlanta calling for Hi-Tech, its executives and others to pay the Federal Trade Commission $15.8 million for deceptively advertising weight loss and erectile dysfunction drugs. The company responded by "attacking the dollar amount" in subsequent court filings and is hopeful the judge will reduce the figure before finalizing the order, Leach said.
Among the company's leading products are Stamina-Rx, which it describes as a "maximum sexual stimulant," Lipodrene, "for advanced appetite control and metabolic stimulation," and Metanabol, a "revolutionary catalyst for increasing lean mass and strength."